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Centamin – Good News but Not all Good: TW vs the Barmy Sukari army Round 3

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Fully listed gold miner Centamin (LSE:CEY) has served up two pieces of good news in two days. The barmy Sukari army on the Bulletin Boards will be delighted and the share price has raced ahead to 44p. That is your cue to sell. Remember 44p it is important.

The first good news came on Friday. You may remember that earlier in the week Centamin stated that it had received a retrospective claim for $65 million for fuel subsidies and that since it had not paid fuel supplies to its Sukari mine had been stopped. On the 14th it stated:

Centamin advises that its fuel supplier Chevron has received notification from Egyptian General Petroleum Corporation (EGPC) that fuel supply to Sukari may be resumed and that no retrospective payment is currently due.  The escalation in diesel pricing that the company experienced from local to international in January 2012 is currently before the courts and has been for some months.  This case will also deal with any retrospective claim.

For alerts on all articles by Tom Winnifrith follow him on twitter @tomwinnifrith

And today we learned that it had also been allowed to resume gold exports, that a first batch of bullion has been shipped and so when cash for that arrives, the company’s working capital position ( something that had been flagged as a cause for concern) would be replenished.

The gold export news is good. The fuel news is a bit of a mixed box. No retrospective claim is currently due the company says. But that means there still is a retrospective claim. To be fair Centamin can afford $65 million. The issue is fuel subsidies going forward. My assumption is that the new rulers of Egypt will not allow subsidies for profitable Western companies when the impoverished masses want to be less impoverished. That is the way the world works in situations like this.

And as broker Fox Davies has noted, without a fuel subsidy this company is worth only 44p[ per share on a NPV basis. That is its underlying value. 

You can read that note in black and white explicit detail here

But shares rarely trade AT fair value. When sentiment is good, folks see few risks, the near term history has been trouble free, etc they trade at a premium. When folks perceive that there are risks, there have been a string of recent, er….issues, sentiment will be poor and shares will trade at a discount to NPV. Well which camp do you think Centamin falls in? Go on…. It is the latter.

So on that basis I cannot see much upside in Centamin. I would sell ( as I have said all summer) and switch into another gold play operating in rather more tolerant lands which offer real earnings visibility. I offer up three such ideas below ( two names you may recognise, one you may not):

One

Two

Three

Tom Winnifrith is a minor speaker at the UKInvestor Show on April 13th. Headline speakers include investment legends Nigel Wray, Evil Knievil, Nick Leslau and gold guru Dominic Frisby all of whom really can be said to be a true master investor. Also on the main stage is UKIP leader Nigel Farage MEP. For a full list of the 16 big name speakers booked in so far or to secure your free ticket click here

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Comments

  1. gonzo says:

    didnt you say sell at 22p last week?I sold on your advice and it has doubled in 3 days

  2. Topman says:

    Yes…he hasn’t got a clue.

  3. Topman says:

    My dear Tom. I remembered 44p! It was a reminder to come back here and kick your sorry ass.

    Market Guru my backside. How’s your short on LGO btw?

    Regards

    Topman

  4. Topman says:

    57p and rising +++++++

  5. Topman says:

    60p now Tommy Boy…..

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